Buying a new car is a significant financial undertaking in any economic climate. However, current U.S. trade policies are adding another layer of complexity for car shoppers, specifically the potential impact of tariffs. Understanding how these policies could affect Car Prices is crucial for anyone considering a vehicle purchase in the near future.
Recently, former President Trump initiated a temporary reprieve for U.S. automakers concerning tariffs on imports from Canada and Mexico. These nations are critical trading partners, supplying a large number of parts and components essential to vehicle manufacturing in the United States. This one-month delay offers a brief window, but the underlying threat of a 25% tariff on automotive imports from these countries remains. Industry analysts warn that if these levies are enacted, the increased costs for manufacturers will likely be passed down to consumers, leading to higher car prices.
Experts suggest that prospective car buyers who are planning to purchase a vehicle in the coming year should seriously consider accelerating their timeline and making a purchase sooner rather than later in 2025. The potential impact of these tariffs on car prices is substantial. According to a recent analysis by Anderson Economic Group (AEG), a well-regarded economic consultancy based in Michigan, car prices could increase anywhere from $2,000 to as much as $12,200 on certain models if the tariffs are implemented.
Patrick Anderson, CEO of AEG, emphasized the direct impact on consumers in a statement to CBS MoneyWatch. “These are cost increases that cannot be hidden from the consumer. Substantial portions, or perhaps all of it, will be passed along to consumers, or manufacturers will stop producing them,” Anderson stated, highlighting the stark choices facing both manufacturers and buyers.
The exact timing of these tariffs remains uncertain. While the recent pause offers some temporary relief, there’s no guarantee of further delays or permanent shelving of these trade measures. Even if the tariffs are implemented in April, the duration of their enforcement is unclear, adding further volatility to the automotive market, according to David Whiston, equity strategist at Morningstar. This uncertainty underscores the need for consumers to stay informed about potential shifts in car prices.
How Tariffs Could Spread Across Vehicle Lineups and Impact Car Prices
While the proportion of components sourced from Canada and Mexico varies across different car models, the automotive industry operates on a principle of cost distribution. Experts anticipate that automakers will not isolate the tariff-related cost increases to specific models. Instead, they are expected to distribute these costs across their entire vehicle lineups to mitigate the immediate impact on any single model’s sales figures. This strategy, while potentially softening the blow for individual models, means that the overall effect will be widespread, influencing car prices across the board.
Tyson Jominy, vice president of analytics at J.D. Power, explained this anticipated industry response to CBS MoneyWatch. “If the tariffs are here, and permanent, by the time we get to summer we’d expect to see higher prices everywhere,” Jominy noted. This prediction emphasizes that the impact on car prices will not be limited to vehicles heavily reliant on Mexican and Canadian parts.
Even vehicles manufactured and assembled in the U.S., using domestically sourced components, are likely to experience price increases. Jominy elaborated on this point: “If we are talking about 25% tariffs on Mexico and Canada, prices will go up, and we are expecting most automakers to peanut-butter spread the impact across their entire portfolio, even if the vehicle is built in the U.S.,” he stated. He further clarified that the interconnected nature of the automotive supply chain means that “every automaker, regardless of where they final assemble, is likely to be affected if these parts tariffs go into effect.” This interconnectedness is a key factor in understanding why car prices are likely to rise broadly.
Automakers are expected to employ strategic pricing strategies to manage these potential cost increases without significantly deterring sales. Jessica Caldwell, head of insights at Edmunds, highlighted this approach to CBS MoneyWatch. “Automakers will smooth costs out across their vehicle lineups,” Caldwell explained. She added that drastic price hikes on single models are unlikely. “They won’t increase one model’s price by 40%. They’ll figure out ways to spread out the costs in a way that doesn’t harm profitability as much, and doesn’t kill sales at the same time,” Caldwell noted. This careful balancing act will still likely result in increased car prices, albeit in a more distributed manner.
Timeline for Potential Car Price Increases
While car prices are not expected to jump overnight if the tariffs on Canada and Mexico are implemented, industry analysts foresee price increases beginning to surface by the summer. This timeline suggests that consumers considering a car purchase in the near to medium term should proactively begin their search and decision-making process. Acting sooner could potentially allow buyers to secure a vehicle before the full impact of tariff-related price hikes is realized.
The speed at which car prices adjust will likely vary depending on individual manufacturer inventory levels. Manufacturers with substantial existing inventory might be able to delay price increases for a longer period. Conversely, those with leaner inventories may be compelled to incorporate the higher costs into their sales prices more rapidly. Jominy from J.D. Power estimates this adjustment period could range from a few weeks to “many months” following the implementation of tariffs. This variability underscores the urgency for consumers to monitor car prices and market conditions closely.
“If you think you’ll need a car within the next several months, you should probably get into the market sooner rather than later,” Jominy advised, reinforcing the message for prospective buyers to act proactively. However, experts caution against impulsive buying decisions. Purchasing a car remains a major financial commitment, and thorough research and due diligence are still essential.
“But if you’re planning to be in market the first half of year, it probably makes sense to speed up what you can and make sure you’re ready to go,” Jominy concluded, offering practical advice for navigating the uncertainty surrounding car prices and tariffs.
Ripple Effect on Used Car Prices
The impact of tariffs is not confined to the new car market. When new car prices increase, a segment of buyers inevitably shifts their focus to the used car market, seeking more affordable options. This increased demand in the used car sector can, in turn, drive up used car prices, creating a ripple effect across the entire automotive market.
“If something comes to pass on tariffs, we’d expected higher prices on both new and used vehicles,” Jominy stated, highlighting the comprehensive impact of tariffs on car prices in both new and used markets.
Experts also anticipate a potential pull-forward effect on demand, not only for cars but also for other goods potentially affected by tariffs. Barry Appleton, co-director of the Center for International Law at New York Law School, explained this phenomenon to CBS MoneyWatch. “Because we don’t know what’s doing to happen, I would be buying everything that I needed that’s an appliance that could have content coming from Canada or Mexico,” Appleton suggested. This anticipatory buying behavior can further influence market dynamics and potentially exacerbate price increases.
Appleton used an analogy to illustrate this concept: “It’s a little bit like eating your lunch at recess. You get the same amount of food — you just get it earlier,” he noted, suggesting that the total demand might not change, but the timing of purchases could shift.
Given the unpredictable nature of tariff policies, with previous instances of reversals and delays, the future of auto tariffs remains uncertain. However, Robert Handfield, professor of supply chain management at North Carolina State University, advises a risk-averse approach. “He postponed the tariffs for a month to give automakers a little breathing room,” Handfield observed. He concludes, “I think it’s a good idea to buy now. You’d be able to get in under the wire and save around $4,000 for a regular sedan or up to $10,000 to $12,000 for a truck, which are significant savings.” This potential for substantial savings further incentivizes acting sooner to mitigate the risk of increased car prices.
Even if the tariffs ultimately do not materialize, making a car purchase sooner rather than later carries minimal risk and potential benefit, according to Caldwell from Edmunds. “Some people don’t have the finances to get it wrong. We are stretched thin financially as a country and new vehicle prices aren’t cheap, so I can see a lot of people don’t want to take the risk,” Caldwell stated. She concludes, “Sure, it might not happen. But what if it does? Now you’re paying how much more that you can’t afford.” This perspective underscores the financial prudence of considering a car purchase in the current climate of tariff uncertainty and potential car price increases.
